Benchmark crude prices for Canadian oil sand crude are down again after fires near the oil sands somewhat subside and start heading away from the oil fields. Meanwhile, the extent of the damage to Fort McMurray and oil field output is yet to be properly accounted for. This is due to the fact that besides the fire hazard, many of the oil field workers were also evacuated, which will have an impact on oil production recovery.
Current estimates put the number of barrels of oil taken off line at anywhere between 600,000 and 1 million per day. This should have a more prolonged impact on the price of oil, but the WTI benchmark along with the British Brent are both down after giving up earlier gains. These trends clearly show that the markets are still awash with crude, and that situation seems to be prevailing despite the lower prices.
Crude prices have not been able to sustain gains even if the fire curtailed world supply and Chinese demand is ticking upwards. This might be due to the Saudi strategy to produce record amounts of crude. Recent reports on Bloomberg claim that Aramco’s CEO still sees significant output growth during 2016. This raises doubts about the extent to which natural disasters, or other wild card events can dent global supply in any manner that would have a sustained effect on oil prices.
This new reality in oil markets has taken a toll on the Canadian Dollar, which was on its way to a spectacular recovery just before the fires took hold of Northern Alberta. The Loonie is down in trading and has lost a lot of the ground it managed to gain previously, over the last week. Until the damages are assessed and reconstruction efforts are on their way, downward pressures on the Loonie will remain, as oil prices continue to struggle.